Wednesday, July 18, 2007

Slow But Sure

The meltdown continues. Reuters (07.17.07):
"Investor anxiety over the U.S. housing downturn is spreading to the highest-rated mortgage securities, upsetting the expectations of some that the crisis in the subprime bond market would be contained.

Weakening credit quality in the $575 billion U.S. subprime mortgage market is eroding the value of 'AAA' securities, heightening anxiety among investors and raising the cost of insuring that debt against default."

Subprime weakness erodes higher-rated ABX indexes

Bet this didn't help. Bloomberg (07.18.07):
"Bear Stearns Cos. told investors in its two failed hedge funds that they will get little if any money back after 'unprecedented declines' in the value of AAA rated securities used to bet on subprime mortgages.

Estimates show there is 'effectively no value left' in the High-Grade Structured Credit Strategies Enhanced Leverage Fund and 'very little value left' in the High-Grade Structured Credit Strategies Fund, Bear Stearns said in a two-page letter."

Bear Stearns Tells Fund Investors 'No Value Left'

Oh yeah. What "little value" there might be remaining in the second fund? You ain't gonna see any of it. "The second fund still has 'sufficient assets' to cover the $1.4 billion it owes Bear Stearns, which as creditor gets paid back first, according to the letter, obtained yesterday by Bloomberg News from a person involved in the matter."

Bloomberg gives us a pithy summary of the current state of affairs:

"The fund that now has nothing left for investors, known as the enhanced fund, had $638 million of capital as of March 31, according to performance reports sent to clients at the time. It also borrowed about $11 billion to make bigger bets."

"The larger fund, which had $925 million, is down about 91 percent this year, according to a person with direct knowledge of the performance, who declined to be identified because the figures aren't public. It borrowed almost $9 billion."

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